I wanted to take a moment to welcome Hance Haney to the Tech Liberation Front blog and introduce TLF readers to our newest contributor. Hance is the director of the Discovery Institute’s “Technology & Democracy” project and a frequent blogger on Discovery’s excellent “Disco-Tech” blog. He’ll be cross-posting many of his Disco-Tech essays here on the TLF now.

I first met Hance over 10 years ago when he was a staffer for Rep. Bob Packwood in the years leading up to the passage of the Telecom Act of 1996. For those who might not remember, Bob Packwood was about as principled as they come on communications, media and First Amendment issues when he was in Congress. Hance and I used to enjoy coming up with radical pieces of legislation that would gut heavy-handed telecom regs and cut the FCC down to size… and, amazingly, his boss would introduce every one of them! (Needless to say, Sen. Packwood and Hance didn’t make a lot of friends with the Big Government crowd in the Senate in those days!)

After leaving his Senate position, Hance worked with the U.S. Telecom Assoc. and Qwest Communications before finally landing at Discovery. As you can see from some of the blog entries he’s alreadypostedhere, Hance does solid research on the issues we care about and will make a fine contributor to the TLF.

Ed Felten points to a Boing Boing post giving details about Microsoft’s decision to drop HD video support from the 32-bit version of Vista. An anonymous Microsoft employee says:

Media Player won’t play HD-DVD and Blu-Ray, but you’ll still be able to play them (on XP, even) with third-party programs like WinDVD and PowerDVD, in full HD.

Why? Because the media companies are willing to certify WinDVD and PowerDVD, but they won’t certify Windows, basically for the reasons described. The other problem is indemnity – Microsoft has much deeper pockets and the risks of someone hacking Windows and getting the Microsoft keys is too high; Microsoft’s payouts to the studios would be enormous. The DRM contracts essentially say that you forfeit all money lost to the studios if your key is hacked. The money “lost” to the studios is of course calculated using the estimate most favorable to the studios – i.e. every copy downloaded off LimeWire is a full-price loss. Intervideo (WinDVD) and Cyberlink (PowerDVD) are small companies and figure they’re not the largest targets, or they’ll just go bankrupt and start again as a new company. Cyberlink is based in Asia, and suing them would be pricey.

The screwball thing about all this is that essentially the same risks of hacked drivers and whatnot exist with PowerDVD and WinDVD; there’s no good reason for the studios to certify them if they really are worried about people using the PC to copy movies.

This guy and Felten both speculate on why the policy is so confused, but I don’t actually think it’s that mysterious. What we’re seeing here is a case study in what happens when you create a large bureaucracy and charge it with performing an impossible task. In this case, Hollywood executives are trying to accomplish two fundamentally incompatible goals: (1) Make their products widely available and (2) make sure no illicit copies get release to peer-to-peer networks. When you charge a bureaucracy with performing an impossible task, it’s inevitable that the resulting policy will be incoherent. The best the bureaucracy can do is make various token decisions in the directions of accomplishing the stated goal–some of which will inevitably be inconsistent or flatly contradictory to others.

The Chairman of the Federal Trade Commission made a significant contribution to understanding the proper role of government in ensuring net neutrality. Speaking at the Progress & Freedom Foundation’s Aspen Summit this week, Deborah Platt Majoras cited the principle that, absent clear and specific evidence of market failure or consumer harm, policymakers should not enact blanket prohibitions of particular business models or conduct.

Second, she reminds us that broadband Internet access services are within the FTC’s jurisdiction and that the agency’s powers are proven. The FTC has successfully targeted Internet service providers who have allegedly enganged in deceptive practices and it has also required a cable system to provide open access to Internet service providers. This track record makes it pretty clear the FTC not only has the power but it also has the inclination to preserve openness and other values associated with the Internet. The allegation is that the D-word (deregulation) is coming to broadband services. Aside from the FTC, the FCC and the Antitrust Division also have jurisdiction over broadband services. Contrary to what one might think from listening to the appeals of net neutrality advocates, there are three levels of government oversight of broadband services.

Third, Majoras acknowledged that important questions have been raised and more information is needed. She announced the formation of an Internet Access Task Force to examine issues related to net neutrality and other matters. Net neutrality has been a debate about hypotheticals, which is part of the reason it has seemed so unproductive. This task force will be made up of economists and attorneys from throughout the FTC who are competition and consumer protection experts. Unlike the FCC, which only does communications, the FTC has wide-ranging experience and expertise arising from their involvement in every sector of the economy. This makes the FTC, perhaps, less beholden to some of the passions and prejudices which animate the special interests that have a dog in this fight. The FTC’s involvement will probably contribute greatly to the debate. With this kind of comprehensive look at all the facts underway, I’ll bet many-to-most in Congress will prefer to review the findings before they cast a vote.
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Critics claimed broadband access is a duopoly (a market in which there are only two providers) but this is technically inaccurate in much of the country so now the complaint is that 98 per cent of broadband customers receive their service from either the telephone company or the cable company. Even this criticism is irrelevant. Consumer harm occurs where prices are excessive or quality is deficient. In the case of broadband, competition is leading to lower prices and higher bandwidth.

Most economists agree it’s misleading to read too much into market shares, although I could point out that regional bell operating companies–the main targets of net neutrality regulation–report only 39.3% of total high-speed connections and that this is far less than a dominant position (other providers who are not telephone companies are lumped together in the FCC’s broadband status report). More important is whether consumers could vote with their feet if an incumbent provider abuses its customer relationships. They could if there are alternate providers or new providers could enter the market. According to the FCC, satellite providers have at least some presence in 88% of the nation’s zip codes, ADSL in 82% and cable modem in 57%. These numbers suggest a lot of consumers have more competitive choices than the critics like to point to. Other technologies, such as fixed and mobile wireless (cellular, PCS and WiMAX) and power line, are growing fast and have enormous potential. They prove that new providers can enter the market.

Broadband is spreading rapidly, according to the FCC. High-speed lines increased by 18% during the second half of 2005 compared to a 12% increase during the first half of 2005. This wouldn’t be happening if broadband providers were gouging their customers or restricting their choices. In order to recoup their multi-billion dollar investments, the providers need to attract all the traffic they can.

The report also says that 99% of the nation’s zip codes have at least one provider who serves at least one customer, and that 99% of the nation’s population lives in those zip codes. Most would agree if only one household or business or a privileged handful have a choice of competitors, that’s a problem. The numbers are actually more positive and the methodology used to gather them more useful than it seems. Cable and telephone networks are never built to serve small groups of people. Networks are capital intensive with high fixed costs, so the cost of bringing on an additional user is always lower than it was for the most recent user. If you have a network you want to build it out as fast as you can, because every additional customer will generate a higher profit margin than the one before. Satellite and wireless providers are capable of serving small groups or even only one customer in an entire zip code, but the fact is they market their services widely and have no incentive to market in such a way as to manipulate the statistics that the FCC gathers in this report.

Duopoly is one of those frightening terms that can either be meaningful or meaningless. In the context of broadband access services, it is meaningless.

State and local lawmakers learned in the 1990s that large, broad-based tax increases are political losers and that they redistribute taxpayers (to lower taxing jurisdictions) rather than redistributing income. Hence, the growing interest in targeting tax increases to divide taxpayers into smaller groups and minimize voter backlash. Tobacco and alcohol are the favorites, but the same thing is happening in telecom and housing. These are some of the findings from a study by Daniel Clifton and Elizabeth Karasmeighan for Americans for Tax Reform.

According to Tom Tauke, “broadband and, in particular, wireless services are increasingly viewed by state and local governments as the golden goose for raising new revenue. The state and local tax burden on communications is now two and a half times what it is for other businesses … Today in some states, taxes on cell phones exceed that of liquor and tobacco.”

Broadband and cellphone providers don’t pay these taxes, of course. They are merely tax collectors. Unfortunately, the taxes lead to higher prices for broadband and cellphone services, which lowers demand, as Tauke points out. Lower demand is bad for innovation, the economy and the future spending plans of politicians and social service advocates.

Clifton and Karasmeighan recommend that states limit spending to the rate of population growth plus inflation to ensure that revenue gains during upturns can be used to offset losses during recessions. They also recommend that states reduce their reliance on volatile revenue sources such as capital gains and dividends. States used temporary surges in capital gains revenue in the 1990s to increase spending permanently. When the stock market declined, states lost 80% of this revenue but kept spending anyway. Many fooled voters into raising taxes to cover the “unforseen” gap.

State and local tax policies are one of the chief threats to investment and innovation in the tech sector today.

Every week, I look at a software patent that’s been in the news. You can see previous installments in the series here. This week’s patent received extensive publicity this week when a judge slapped a $25 million fine on Microsoft for “misconduct,” including treating the patent holder, z4 Technologies, as “a small and irrelevant company that was not worthy of Microsoft’s time and attention.” Which as far as I can tell, it was, aside from the fact that it happened to have a patent on the kind of copy protection Microsoft uses in Windows XP.

There are two closely related patents at issue. The older of the two is Patent #6,044,471, “Method and apparatus for securing software to reduce unauthorized use.” (Strangely enough, the other patent was filed in 2002 and issued in 2004. It’s hard to see how Windows XP, released in 2001, could infringe it.)

The TSA has posted a helpful web site detailing what now not allowed on airplanes:

We encourage everyone to pack gel-filled bras in their checked baggage. We recognize the sensitivity of the issue and we are reaching out to key women’s medical associations to assist passengers and make information available to them while respecting their privacy. Passengers with medical gel prosthetics will be permitted through the security checkpoint.

Please keep in mind, that while we can not provide an exhaustive list of items that covering all eventualities, all liquids, gels, or aerosols of any kind are prohibited at security checkpoints, in airport sterile areas, and aboard aircraft. You can pack these items in your checked baggage.

We ask for your cooperation in the screening process by being prepared before you arrive. We also ask that you follow the guidelines above and try not to over-think these guidelines. Please pack liquids, gels, and aerosols in your checked baggage even if you do not normally check a bag.

The last thing we’d want is sheep passengers who think too much.

The most depressing thing about that web page is that the fact that they bothered to create it probably means these rules are not going to go away any time soon.

Cory Doctorow points to an article (that’s currently slashdotted) about Microsoft’s plan to disable high-def video playback in 32-bit versions of Windows Vista. It seems that there are too many ways to hack around Microsoft’s copy protection scheme in the 32-bit version, so Microsoft has simply thrown in the towel and told a substantial fraction of its customers that they’re out of luck.

As Doctorow notes, this creates an interesting perverse incentive, since movies downloaded from illegal file-sharing sites will work just fine. Is Hollywood trying to drive its customers into the arms of pirates?

Prompted by the good discussion over on my recent ‘Lack of Competition’ Meme post, I’ve just spent some time looking over other posts here on TLF for articulation of why we seem to be so intransigent about net neutrality regulation.

I think it’s the consensus among TLFers that regulation is a poor way of getting the best delivery of bits to end-users. There are some good posts, but I couldn’t find the one or two that clearly show why we so prefer competition to regulation for solving this problem.